Though my background is in hedge funds, I've been training my consigliere muscles to see if they can be useful in the world of private equity. My working hypothesis is that the private markets/public markets distinction is kind of an illusion, that my ability to evaluate a business and its management, make sure it's behaving like a long-term owner, and avoid overpaying can be applied to public companies as well as private ones, or even to VC investments. If you look at it this way, Wal-Mart under Sam Walton was essentially a private equity investment, even though the company was public. Conversely, a PE deal like Hertz in hindsight looks more like a stock trade. The point is, its the skill set that matters, not the label.
So I'm trying to learn about private equity and the people who do it well. Coincidentally, I'm also interested in Japanese private equity in particular: There is this chart on page 23 of the 5/20/08 edition of Outstanding Investor Digest that tracks the Nikkei 225 Index vs. Japanese 10-yr government bonds since 1986. It basically shows that stocks have gone nowhere, while bond yields have trended down. If you assume that the earnings of Corporate Japan have been increasing, albeit slowly, throughout this period, then that implies that the earnings yield (the inverse of the PE ratio) of the Nikkei has been trending up. It also implies that the spread between the corporate earnings yield and corporate borrowing rates (which key off government bond interest rates) is historically high. PE firms make their living by borrowing at low rates and investing at high earnings yields, so this should be a good time for PE in Japan, right?
So I have two projects: a) Studying the great PE investors and b) investigating PE in Japan.
This book helped me do both: Saving the Sun: How Wall Street Mavericks Shook Up Japan's Financial World and Made Billions by Gillian Tett of the FT. A lot of it is specific to Japanese banks but it's interesting nonetheless.
By the way, here's an FT profile of Flowers by Tett from October 2007.
Here's a short announcement about Morgan Stanley strengthening its Japanese private equity business.